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INTRODUCTION
Alternative minimum tax (AMT) is becoming a taxing burden on the middle
class. Originally, it was created to tax the wealthy individual taxpayers that were not
paying any tax at all. The minimum tax was created to rectify and tax the wealthy
individuals. Over the years, the minimum tax was modified and eventually became what
we know as alternative minimum tax. Over the years, the tax has started to creep up the
tax brackets and affect millions of taxpayers. The taxpayers are middle-class individuals
that have become burdened by compliance and additional costs of preparation. In
addition, the middle-class has seen an increase in overall tax burdens. This paper will
discuss the history of alternative minimum tax, how it is computed, who is affected, the
burden and costs of compliance, the future and solutions to alternative minimum tax.
HISTORY OF ALTERNATIVE MINIMUM TAX
The Tax Reform Act of 1969 introduced, for the first time, a minimum tax on
high-income households. It was put into effect to close loopholes. The tax was intended
to target 155 high-income households with adjusted gross income over $200,000 that
owed little or no taxes due to the many tax benefits claimed on their 1967 tax returns.
Adjusted for inflation, $200,000 in 1967 equals about $1,100,000 in today’s dollars. In
1967, the number of tax returns filed was approximately 71.7 million with 15,669 having
over $200,000 adjusted gross income. The minimum tax only affected about one in every
half-million taxpayers (Saxton). In 1975, the minimum tax had collected over $144
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million in taxes from approximately 20,000 taxpayers. The minimum tax was an ‘add-on’
tax of ten percent. Taxpayers paid a ten percent tax on the amount that their reduction of
tax preferences exceeded $30,000. For example, if a taxpayer’s tax preferences, or
reduction of tax liability was $40,000, the additional tax due would be ten percent of
$40,000 - $10,000, or $1,000. The calculation of the minimum tax was not a separate set
of rules or list of reductions, as it is today. In 1976, Congress found that 244 taxpayers
during 1974 with adjusted gross income exceeding $200,000 had not paid any taxes. It
decided to raise the minimum tax to 15 percent to broaden the tax base and capture more
tax dollars. (Saxton).
Over the years, Congress has changed the tax in significant ways, evolving into
the current alternative minimum tax. In 1973, Congress became concerned that changes
made to the minimum tax were delaying capital formations. Changes slowly evolved and
significant changes were made in 1978, 1982, 1986, 1990 and 1993. During the change
process, Congress decided to created a new tax, the alternative minimum tax and repeal
the minimum tax (Saxton). The Tax Equity and Fiscal Responsibility Act of 1982 was
introduced and is what our current AMT structure is based on. The changes have created
a parallel tax system with its own definition of taxable income, exemptions and rates.
This tax system applies to both individual taxpayers and also corporate taxpayers. Tax is
generally computed under the regular tax system and it is also calculated under the
alternative minimum tax system. In the AMT rules, the taxpayer is disallowed a
deduction for state and local taxes, a deduction for personal exemptions, the standard
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deduction and the deduction for interest on the home. As we shall see, the taxpayer
calculates both taxes and pays whichever tax is higher (Saxton).
The Tax Reform Act of 1986 changed definitions and created further
reorganization. A quote from the New York Times stated “A law for untaxed rich
investors was refocused on families who own their homes in high tax states” (Wikipedia).
Due to the disallowed personal exemption, state and local taxes and the standard
deduction, the tax was starting to affect families in high tax states. The Omnibus Budget
Reconciliation Acts of 1990 & 1993 raised AMT rates to 24% and to 26% and 28%. The
prior AMT rate was 21%. The significant modifications to the AMT computation
changed the target of the tax, now including those who did not have high incomes
exceeding $200,000 (Saxton).
The current alternative minimum tax is imposed under Title 26, Section 55 of the
Internal Revenue Code. Taxpayers now pay either 26% or 28% on the adjusted
alternative minimum taxable income (AMTI). The tax preferences used to adjust the
income are (a) state and local tax; (b) sales and property taxes; (c) accelerated
depreciation; (d) the bargain element in exercised incentive stock options; (e) percentage
depletion; (f) certain tax-exempt income; (g) certain credits; (h) personal exemptions; (i)
standard deduction; (j) at times, capital gains (Service).
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HOW ALTERNATIVE MINIMUM TAX IS COMPUTED
All taxpayers potentially subject to alternative minimum tax must fill out and file
Form 6251, even if they do not end up paying alternative minimum tax. In 1997, 4.4
million people filed Form 6251, but only 20% of those who filed the form actually paid
any alternative minimum tax (Saxton). In order to determine if one owes alternative
minimum tax, a taxpayer must follow four steps. First, he must calculate his regular
income tax. Second, the he must then determine if he is automatically subject to the tax or
he can fill out the 13-line worksheet with Forms 1040 and 1040A. Third, the taxpayer
fills out Form 6251 to recalculate taxable income using the AMT rules. The form is fifty
lines long, and the end result is the tentative minimum tax. Lastly, the taxpayer compares
the regular tax with the tentative minimum tax to see which is larger. If the tentative
minimum tax is larger, the taxpayer pays the regular tax, plus the difference as the
alternative minimum tax (Saxton).
Alternative minimum tax uses a different set of rules to determine taxable income
and deductions. The tax preferences, as listed above, are added back. The AMT
exemption is then subtracted to calculate AMT taxable income (AMTI). The AMT
exemption is phased-out 25 cents per dollar for every dollar over $150,000. For example,
the exemption limit for 2008 was $69,950 for married filing joint. If the couple’s income
was $175,000, the exemption would phase-out as follows: $25,000 multiplied by 25
cents, equals $6,250. The couple’s exemption would be $69,950 minus $6,250, leaving
$63,700 as an exemption. The phase out has not been adjusted for inflation since 1986.
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Congress has continued to ‘patch’ AMT over the years. For tax year 2007, the AMT
Exemption fully phases out at $415,000 for married filing joint taxpayers, causing true
tax rates to be 32.5% and 35%. Once AMTI is established, the taxpayer then calculates
the tentative minimum tax (TMT) by multiplying AMTI by 26%, up to $175,000. Any
AMTI over $175,000 is multiplied by 28%. If the TMT is greater than the regular tax, the
taxpayer pays the regular tax, plus the additional amount (Saxton).
Alternative minimum tax can affect taxpayers in two ways. As discussed above,
taxpayers can be affected directly by calculating an AMT tax liability greater than regular
tax liability. In addition, taxpayers can be affected indirectly, by a reduction of tax credit
allowed under regular income tax calculations. In essence, the indirect affect is just as
worrisome as the direct effect of AMT. Taxpayers who would usually receive certain tax
credits that become disallowed because of AMT are impacted with higher taxes (U. S.
Office).
WHO IS AFFECTED BY ALTERNATIVE MINIMUM TAX?
There are two main reasons why increasingly more taxpayers are becoming
subject to AMT. First, three legislative acts that created tax cuts, the “Economic Growth
and Tax Relief Reconciliation Act of 2001, Jobs and Growth Tax Relief Reconciliation
Act of 2003, and the Working Families Tax Relief Act of 2004 have narrowed
significantly the differences between regular and AMT tax liabilities for middle and high
income individuals” (Committee). Second, alternative minimum tax has not been indexed
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for inflation. This has caused many problems for the middle class, as they have become
subject to the tax more and more.
Corporations are also subject to alternative minimum tax. In 1997, corporate
taxpayers paid AMT on 25,000 tax returns, compared to individuals, who paid AMT on
618,000 tax returns. Corporate taxpayers generated almost as much tax as individuals,
approximately $4 billion. In 2000, an estimated 1.3 million people paid AMT and it is
estimated that by 2010, an estimated 17 million people will pay AMT. Since AMT has
not been indexed for inflation, people will be moving into higher tax brackets, causing
“real bracket creep” (Saxton). In 2006, the National Taxpayer Advocate reported that
AMT was “the single most serious problem with the tax code” (Leonard E. Burman).
Most sophisticated upper bracket taxpayers are aware they are subject to AMT;
however, the majority of the middle class has never heard about AMT. The middle class
is being punished for having children, living in a high-tax state or having an expensive
home. Many taxpayers are surprised to find they are subject to AMT since they are not
aware of it until they prepare their tax returns. In addition, the complexity of AMT leads
to errors in completing returns or the need for additional professional help to file the tax
return. Often, the taxpayer is not aware of the AMT until the IRS has made contact with
the taxpayer and told him there is additional tax due (Committee).
A brief by the
Congressional Budget Office (CBO) (No. 4, April 15, 2004), concludes:
Over the coming decade, a growing number of taxpayers will become liable for
the AMT. In 2010, if nothing is changed, one in five taxpayers will have AMT
liability and nearly every married taxpayer with income between $100,000 and
$500,000 will owe the alternative tax. Rather than affecting only high-income
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taxpayers who would otherwise pay no tax, the AMT has extended its reach to
many upper-middle-income households. As an increasing number of taxpayers
incur the AMT, pressures to reduce or eliminate the tax are likely to grow.
It is estimated that married taxpayers are fifteen times more likely to be affected by AMT
than single taxpayers. Even more staggering, by 2010 it is projected that eighty percent of
taxpayers with incomes between $100,000 and $200,000 will be subject to AMT. It is
estimated that a higher percentage of middle income taxpayers with income between
$75,000 and $100,000, over fifty percent, will pay AMT compared to thirty-nine percent
of taxpayers with income exceeding $1 million (Committee).
For several years now, Congress has ‘patched’ AMT at the end of the tax year to
minimize the impact of the tax since it has not been adjusted for inflation. The
Alternative Minimum Tax Relief Act of 2008 is a one-year extension of the tax
exemptions and credits. The act prevents AMT from burdening over 25 million middleclass taxpayers. This ‘patch’ has helped reduce the affect of AMT, but more and more
taxpayers are still becoming subject to it (TheMiddleClass.org). A quote from Leonard E.
Burman from the Tax Policy Institute summarizes the issues with AMT:
In a tax code with no shortages of ironies, the alternative minimum tax (AMT)
stands out. Created by Congress in 1969, it was aimed at millionaires, but
relatively few millionaires pay it. It is billed as a low-rate levy, but most of its
victims face higher taxes because of it. It undermines two widely lauded reforms
of the income tax – restoring both bracket creep and the marriage penalty. At first
glance, AMT may seem simple and fair. But for reasons nobody imagined when it
was created, the AMT bull’s-eye hangs not on the folks with Cayman Islands
bank accounts, but on the upper-middle-income families with lots of kids who
happen to live in high-tax states. And it doesn’t just raise their taxes. It plagues
them with mind-numbing complexity (TheMiddleClass.org).
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CRITICISMS AND CONTROVERSIES
Alternative minimum tax is not looked upon favorably by many individuals and
organizations. The following organizations have suggested that Congress appeal
alternative minimum tax – IRS’s National Taxpayer Advocate; American Institute of
Certified Public Accountants; American Bar Association’s Section on Taxation; and the
Tax Executives Institute and Congress’ own Joint Committee on Taxation. These
organizations claim that without AMT, a relatively small number of high-income
taxpayers would pay no federal income tax compared to the total number of returns filed.
The IRS estimates that without AMT, approximately 14,000 taxpayers would pay no
federal income tax. In tax-year 1998, 125 million tax returns were filed, with more than
93 million taxpayers paying regular income tax after tax credits. If 14,000 is divided by
93 million resulting in 0.015 percent, this means that 99.985 percent of taxpayers paid
regular income tax without AMT. Therefore, AMT only added one additional taxpayer
for every 6,600 taxpayers already paying taxes (Saxton). Even with alternative minimum
tax, the goal of making everyone with high income pay some taxes is not achieved. There
are still a number of taxpayers with adjusted gross income exceeding $200,000 that do
not pay federal income tax. Unadjusted for inflation, it is estimated that the number of
taxpayers has not exceeded 1,500 (C. B. Office).
Additional criticisms are made of alternative minimum tax:

AMT is distorts the actual tax rates
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
AMT exemption and AMT exemption phase-out threshold are not indexed
for inflation, causing more taxpayers to be subject to the tax

AMT disallows the deduction for state taxes

AMT disallows a portion of the foreign tax credit, creating double taxation
for citizens living abroad

Tax planning can be quite complex for businesses and individuals wanting
to start a business or sell assets

Taxes are often owed when a taxpayer exercises an ISO stock option
because the bargain element of the exercise is considered income under
AMT
Most of the organizations that want AMT repealed believe that it is too complex and
creates a large burden on taxpayers (Wikipedia). An IRS National Taxpayer Advocate,
Nina Olson gave her testimony on March 7, 2007 before the House Ways and Means
Committee, stating:
The burden that AMT imposes is substantial. In dollar terms, it is estimated that
each AMT taxpayer will owe, on average, an additional $6,782 in tax in 2006. In
terms of complexity and time, taxpayers often must complete a 16-line worksheet,
read 10 pages of instructions, and complete a 55-line form simply to determine
whether they are subject to the AMT. Thus, it is hardly surprising that 77 percent
of AMT taxpayers hire practitioners to prepare their returns (Committee).
COMPLEXITY AND COSTS OF COMPLIANCE
For a taxpayer, trying to determine whether AMT is applicable can be difficult. A
taxpayer, if preparing his own return, would have to read 9 pages of instructions,
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complete a 16 line worksheet and a 55 line form. Once the taxpayer determines he is
going to be affected by AMT, he may have to calculate carry-forwards since he may be
treated differently than on the regular tax calculation (Wikipedia). The complexity of the
IRS code has increased over the years. Originally, the minimum tax legislation was 19
pages long. By 1999, the alternative minimum tax legislation was 56 pages in small type
(Saxton).
Every taxpayer who is potentially subject to AMT has some type of compliance
cost. The IRS has acknowledged that the forms are complex and it has tried to make
certain tax forms easier to fill out with ‘EZ’ forms. Taxpayers, however, do not always
have the option of these easier forms. In 2000, Form 1040, excluding attachments, came
with seventy pages of instructions and was estimated at thirteen hours of preparation
time. If subject to AMT, a taxpayer is required to fill out two additional tax forms, with
eight pages of instructions and an estimated six hours of preparation. Due to the
complexity of the tax filings, many taxpayers have to rely on paid professionals to file
proper tax returns (Saxton). In 1997, fifty-two percent of all taxpayers used a paid
preparer to file their tax return. Of the total 4.4 million taxpayers who filed Form 6251,
ninety-three percent of taxpayers used paid preparers (Saxton).
The Internal Revenue Service and the Department of the Treasury have created an
Individual Taxpayer Burden Model to measure taxpayer burden as it relates to alternative
minimum tax. The taxpayer model is based on tax-year 2000. The purpose of the model
is to understand the compliance burdens imposed on taxpayers by AMT and to be able to
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construct accurate and reasonable burden estimates for specific tax filing requirements. In
this model, it is determined that AMT affects taxpayers in three ways: 1) there is no
AMT; therefore, no Form 6251 is filed and taxpayer has no extra burden; 2) taxpayer is
required to file Form 6251 but no AMT is owed; therefore, taxpayer incurs extra burden
from filling out and filing the Form 6251; 3) taxpayer is subject to AMT and has the
burden of filling out and filing the Form 6251 (Lee).
During 2000, data collected shows that 5.7 million taxpayers filed Form 6251. Of
the total Form 6251 filed, 1.4 million filed because they owed additional taxes, 0.5
million filed because they were required to do so even though they did not owe additional
taxes and 3.8 million filed the Form 6251 even though it appeared they were not required
to file the form. The results of the data indicate that sixty-seven percent of the filed forms
were filed in error. In addition to the number of forms filed, the data collected indicates
that seventy-eight percent of the taxpayers filing Form 6251 used a paid professional.
Paid professionals are in the profession of preparing tax returns and educating
themselves. If so many of the forms were filed incorrectly and over half of them were
prepared by paid professionals, what does that say about the complexity of the form
(Lee)?
The taxpayer burden model also calculated the time and cost of compliance with
alternative minimum tax. It determined that the cost and time of preparation was
determined by the method of preparation. It was estimated that a taxpayer could prepare
Form 6251 without software and it would take approximately 4.6 hours and cost $17 for
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the manual. It was estimated that a taxpayer could prepare Form 6251 with software
costing $15 in 2.4 hours. It was also estimated that a taxpayer could use a paid preparer to
file Form 6251 and it would cost $107 and 1.7 hours. The average cost of the three
possible situations was $88 and 1.9 hours of time (Lee). This model does not take into
account that when a taxpayer hires a paid preparer, the preparer will charge the client for
the preparation of the entire tax return, not just Form 6251. When a taxpayer suspects
they are subject to AMT or other complex tax issues, they usually seek professional help
when they might not have in other cases.
By analyzing the data for 2000, we can calculate the tax burden on the taxpayer.
If we used the data from above, the 1.4 million taxpayers who filed Form 6251 because
they owed additional taxes incurred $123 million in compliance costs. There were an
additional 0.5 million taxpayers required to file Form 6251, at a cost of $44 million to
remain in compliance. The most staggering number is the 3.8 million taxpayers who
spend a total estimated $334 million to file Form 6251 when it was not needed (Lee). The
time and money spent on filing Form 6251 will only increase as the tax law becomes
more complex. In addition, if no reform is passed to fix the problems with the current
legislation, the middle class will be hit even harder economically.
In addition to taxpayer burden, the alternative minimum tax system creates extra
work and complications for the Internal Revenue Service (IRS). Even though most
taxpayers that are affected by alternative minimum tax use a paid professional to help file
their taxes, the IRS faces increased call volumes on their help lines related directly with
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AMT issues. In 1999, the IRS responded to over 6,400 calls from taxpayers regarding
AMT issues and it dealt with numerous errors, over 10 percent, on tax returns with direct
AMT liability. The errors are created by both taxpayers who self-prepare tax returns and
also by paid professionals. Since alternative minimum tax is not an add-on tax related to
the existing tax system, it cannot easily be verified with computer-checking calculations.
In many instances, the only way to verify that a tax return with alternative minimum tax
is calculated correctly is through a field or desk audit. An audit by the IRS costs the
taxpayer more money due to the time and inconvenience and it also costs the IRS more
due to precious staff time being committed time consuming audits. “According to IRS,
the frontline employees who do such verification work consistently rank AMT as one of
the most complex provisions with which they deal (U. S. Office).”
THE FUTURE OF AMT
If alternative minimum tax stays the same, the number of taxpayers affected by it
will increase substantially. The concept of “bracket creep” will continue to happen. Real
bracket creep occurs when people move into higher tax brackets as the economy is
growing over the long term and wages continue to grow as well. Since AMT is not
indexed for inflation, people will move into higher tax brackets. Historically, inflation in
the United States has been low. However, if nothing is done to change the current AMT
tax law, most taxpayers will move out of their current tax brackets and become subject to
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AMT because their AMT liabilities will increase faster than regular tax liabilities (U. S.
Office).
Over the past ten years, the number of taxpayers affected by AMT has increased
ten-fold. The estimated number of taxpayers in 2000 subject to additional AMT taxes was
1.4 million. By 2010, it is estimated that over 17 million taxpayers will be affected by
alternative minimum tax. Of the 17 million, approximately 12.1 million will be directly
affected by having to pay additional taxes and approximately 4.9 million will be
indirectly affected by having their credits reduced. In both instances, taxpayers will be
paying higher taxes, especially the middle class (Saxton). Under the current law, in 2007,
taxpayers filing joint returns with no dependents could be subject to AMT with income as
low as $75,395. By 2016, if tax cuts created in 2001 and 2003 are extended, over 48
million taxpayers could end up paying alternative minimum tax. Congress has continued
to patch AMT at the last minute each year in order to minimize the current AMT affect
(Committee).
SOLUTIONS TO AMT
The question that has been asked numerous times is “how do we deal with
alternative minimum tax and fix it?” Many options have been suggested over the years.
One suggestion is to leave it alone knowing it will eventually become a universal tax for
everyone with tax rates at 26 and 28 percent. Many are not satisfied with leaving AMT
alone because they do not want to pay higher taxes. The original goal of AMT was to
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target the wealthy taxpayers who were not paying taxes. If left alone, the system would
move to a universal tax that targets just the opposite, the struggling middle class. Another
option would be to make technical changes to the tax code. Currently, the highest number
of taxpayers becoming subject to AMT are those middle class families that have
numerous children. Technical changes that could help relieve the tax burden on these
taxpayers would be to eliminate both the limits on exemptions for children and the
standard deduction (Saxton).
Others have suggested making additional changes to help slow down the effect of
alternative minimum tax. If alternative minimum tax was indexed for inflation, it would
considerably slow down the number of taxpayers becoming subject to AMT. This would
not solve the problem because more people would still become affected over the long
term due to real bracket creep. However, it would be a beginning step to help relieve the
tax burden of a system currently not meeting its original goal. In addition, other
modifications to the tax code that would help reduce liability, such as, changing the limits
or exclusions for state and local taxes, would be helpful. Another item for discussion is
reviewing and modifying the limits put on the exemption levels (Saxton).
The most far-reaching option would be to repeal alternative minimum tax. This
option has been seriously considered in the past. There have been at least eight bills
proposed to repeal AMT in Congress. The Taxpayer Refund and Relief Act of 1999
included a phase-out of alternative minimum tax during 2005 – 2007. The House of
Representatives passed the bill, but it failed in the Senate because “By using project
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surpluses to provide a risky tax cut, H.R. 2488 could lead to higher interest rates, thereby
undercutting any benefits for most Americans by increasing home mortgage payments,
car loan payments and credit card rates” (Saxton). A simple reform of AMT that would
help shield the middle-class would be to extend the exemption increase and index AMT
for inflation. “If indexation were applied to rate brackets and the phase-out as well as the
exemption, only 3.6 million taxpayers would be subject to AMT in 2007, down from 23.4
million under current law” (Finance).
The alternative minimum tax repeal has failed for many reasons. First, most
importantly, it would reduce federal tax revenues. In the current economic situation, the
government is relying on every source of tax revenue possible to continue to fight against
the ever-growing deficit. It is estimated that sixteen percent of tax revenues in 2010 will
be from alternative minimum tax, half of which is from individual taxpayers. The figures
are staggering. It is predicted that revenues from AMT will approach $38.2 billion in tax
year 2010. The additional taxes generated by AMT are estimated to account for over $24
billion in additional tax revenues (U. S. Office).
On the other hand, the repeal would help individuals and corporations by
eliminating a complex and convoluted parallel tax system. It would also reduce the cost
that the taxpayer has for compliance and preparation of taxes. These positives will not be
enough to create reasons for reform. Over the past ten years, the perception of fairness of
who should be taxed has become distorted. The original purpose of alternative minimum
tax was to make sure the higher income earners paid some federal taxes. Over the past ten
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years, as AMT has begun to affect more middle-income taxpayers, the perception has
become negative. However, as our government has continued to increase its deficit, it has
become more reliant on the tax revenues and will probably not make significant changes
that reduce its source of additional income even as it creates burdens on the wrong class
of taxpayers (Saxton).
Overall, the repeal of alternative minimum tax is deemed too costly to institute.
The Tax Policy Center states the repeal would actually reduce taxes for the top fifth of
income earners by 74.5 percent. It would only reduce taxes by 0.1 percent for the lower
two fifths of income earners. The Tax Policy Center suggests the best way to fix
alternative minimum tax would be to permanently shield the middle class and to index for
inflation (TheMiddleClass.org). If AMT stays in its current state, it could possibly
neutralize the impact of future tax codes changes to the regular tax system. If future
legislative changes are passed to cut taxes or add credits, the current alternative minimum
tax system could counteract the benefits by its direct or indirect affect. For example, if
tax cuts were put into place to help relive the tax burden, the separate calculation of the
alternative minimum tax may disallow the tax cut in part or total; therefore, the taxpayer
is in the same or worse tax situation (U. S. Office).
Other solutions have been offered to help reduce the effect of AMT without
losing precious tax revenues. One solution outlined in a Committee on Finance meeting
on June 27, 2007 included imposing a four percent adjusted gross income (AGI) surtax
on couples with income exceeding $200,000 and individuals exceeding $100,000. Some
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believe imposing a surtax would be ineffective because it would raise marginal tax rates
and encourage tax avoidance. The Committee claimed that some would definitely pay
higher rates; however, a significant number of these taxpayers would actually see a cut in
their taxes because of the elimination of AMT exemption phaseout (Finance).
Another solution to the loss of tax revenues is to repeal the state and local tax
deduction and lower income tax rates by two percent. The Committee claims that the
repeal would raise more than enough tax revenues to cover the repeal of AMT, even with
the two percent reduction in tax rates. The net effect of eliminating the state and local tax
deduction and lowering taxes by two percent is small on the middle-income taxpayers.
The reason for this is because even though the AMT repeal is regressive, the repeal of
state and local income taxes is progressive as income increases. Most of the taxpayers in
the bottom sixty percent are not able to itemize; therefore, they do not see the benefits of
deducting state and local taxes (Finance).
CONCLUSION
Repealing alternative tax would eliminate the extra burdens and relieve some of
the costs of compliance for taxpayers. However, it is very unlikely that AMT would be
repealed since it would take such a large chunk of revenues out of the government’s
pocket. The government relies on the tax revenues created by AMT. Official budget
estimates that AMT will provide nearly $1 trillion in tax revenues over the next 10 years.
If the solution to AMT is repealing it, it would have to include an increase in tax revenues
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from other sources so that it wouldn’t increase the deficit. No matter what the solution,
some taxpayers will benefit and some will pay the price. It is not possible to reform the
system without affecting someone. What is definite is that alternative minimum tax needs
to be reformed so that it can return to fulfill its original purpose of targeting the high
income earners and not middle income taxpayers who are unfairly being punished with
higher taxes. The tax system needs to be reformed and simplified if the government
wants to reduce the tax gap, reduce the number of errors on tax returns and reduce the
motivation of taxpayers looking for tax shelters.
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WORKS CITED
Committee, House Ways and Means. Neals Announces Second in a Series of Hearings on
the Alternative Minimum Tax. Washington, D.C.: House Ways and Means
Committee, 2007.
Finance, Committee On. The Stealth Tax That's No Longer a Wealth Tax: How to Stop
the AMT from Sneaking up on Unsuspecting Taxpayers. Washington, D.C.: U.S.
Government, 2007.
Lee, Allen H. Lerman and Peter S. Evaluating the Ability of the Individual Taxpayer
Burden Model to Measure Components of Taxpayer Burden: The Alternative
Minimum Tax as a Case Study. Washington, D.C.: Department of the Treasury &
Internal Revenue Service, 2004.
Leonard E. Burman, William G. Gale and Jeffrey Rohaly. The Expanding Reach of the
Individual Alternative Minimum Tax. Washington, D.C., 2005.
Office, Congressional Budget. The Alternative Minimum Tax. Washington, D.C.:
Congressional Budget Office , 2004.
Office, United States General Accounting. Alternative Minimum Tax: An Overview of
Its Rationale and Impact on Individual Taxpayers. Washington, D.C.: GAO,
August 2000.
Saxton, Chairman Jim. The Alternative Minimum Tax For Individuals: A Growing
Burden. 1 May 2001. 6 September 2009
<http://www.house.gov/jec/tax/amt.htm>.
Service, Internal Revenue. "Publication 17." Washington: Internal Revenue Service,
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2008.
TheMiddleClass.org. Alternative Minimum Tax Relief Act of 2008. 17 June 2008. 6
September 2009 <http://themiddleclass.org/bill/alternative-minimum-tax-reliefact-2008>.
Wikipedia. Alternative Minimum Tax. 6 September 2009. 6 September 2009.